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Crowdfunding for research and innovation: a growing phenomenon in Europe?

Submitted by pgrochowski on Thu, 2016-08-11 10:55.

As part of the study key stakeholders participate in focus groups discussing key issues and opportunities for development of crowdfunding (CF) for R&I in Europe. Let’s shed a light on some of the preliminary findings!

CF for research and innovation: what’s the difference anyway?

Funding research and innovation through Crowdfunding is a core-focus of this study.First feedback from 2 focus groups with investors and crowdfunding platforms suggest that research and innovation cannot be approached in the same way. The funding of research and innovation is at an axis of investment for development, as one focus group on Crowdfunding for research and innovation noted, “for research, money is used to create new knowledge; for innovation, new knowledge is used to create money. ” Neither equity nor results from research can be guaranteed; research is seen as a long-term investment, something that can generate tangible returns in decades. Meanwhile CF investors in innovation expect to see returns in 4-7 years.

Are crowdfunding models for research and innovation really alike?

It is not only one phase of the innovation cycle that is most appropriate for crowdfunding, but that each stage of the R&I cycle could potentially be financed through different crowdfunding models. Preliminary results suggest that donation and reward platforms tend to be more suitable for research projects; while innovation projects that are close to commercialisation are more suited to equity and lending platforms.
Successfully funded science projects tend to have a cool factor, which makes them viral. A key challenge is providing return to investors or enough ‘rewards’ to engage the community. Investors argued that crowdfunding could be successful in the applied research and basic research phase, stating that these steps of the innovation cycle are less attractive for professional investors because usually they are too complex, require large amounts of money and represent unsecured investments.
Projects for science and research raise 10 000€ while the biggest projects tend to raised up to 50 000€. Average investment in a project is 50-100€ with a success rate of 60-80%. These projects are funded through science-focused crowdfunding platforms such as Walacea, Scienstarter etc. Even though donation and reward models are also used by innovation projects, more money is invested in those projects via lending or equity based platforms (such as Seedrs or Invesdor) where 80% of projects raising 50 000-500 000 are successful, and the average investment claimed varies between 100-1000€.

What investors expect?

With CF being still a new phenomenon, those who lead projects may not have the experience of dealing with investor relations. Platforms find it challenging to communicate the way in which CF works: both investors and platforms find the process not as transparent as it could be. Communications between platforms, investors and innovators needs to be improved. Furthermore, every platform has a different level of verifying the suitability of the projects and thus, minimizing the investment risks.

Investors mitigate risk by testing the waters, they first invest an initial amount; if the response is positive more money is invested. Furthermore professional investors on equity and lending platforms invest in projects that have a legal entity behind it. While preferences from investors tend to lay in startups and high growth companies, individual fundraisers are the one that benefit the most from using the crowdfunding potential for their projects .

The full study will be released January 2017, until then we will release some of the findings, so stay tuned! Please share with us, your experience with CF in Europe? Ever used it? Does it need improvement and how would you make it better?

In the meantime, if you are looking for a crowdfunding platform to use to raise money for your project, take a look at our unique list of all EU platforms: http://crowdfunding4innovation.eu/platforms
Stay in touch and watch this space for more interesting info to come.

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